Zimbabwe has brought back the Zimbabwe dollar just over a decade after its usefulness was destroyed by hyperinflation. The country’s central bank this week said that other currencies, including the US dollar and the rand, in use since 2009, would no longer be accepted as legal tender.
A local quasi currency known as bond notes, which were introduced in 2016 but cannot trade outside the country, and their electronic equivalent, the RTGS dollar, will now be known as the Zimbabwe dollar.
The authorities had abandoned the Zimbabwe dollar after inflation reached an estimated 500 billion percent in 2008, according to the International Monetary Fund.
While the country has since used a basket of currencies from the continent and abroad, as well as bond notes and the RTGS dollar, some government departments and agencies have until recently demanded payment in the greenback.
The central bank made it clear in its announcement that money held in foreign currency accounts would not be affected, but this will be greeted with alarm and memories of the lives wrecked and pensions and savings lost in 2008. Recollections of what effectively became a barter economy in a country where a suitcase full of bank notes was needed to purchase a pair of jeans will be hard to erase.
The central bank also announced a series of other measures, including raising the rate on its overnight window to 50% from 15%, to buttress the currency.
“Any attempt by the officials to bring a new currency would require confidence,” said Jee-A van der Linde, an economist at NKC African Economics in Paarl.
The timeline of the Zim dollar
“People aren’t sure there’s something backing the currency. There’s no way something like this will be maintained. People will not trust the currency. It will promote even more off-market activity, if that’s possible.”
Zimbabwe’s official currency trades at a discount on the street.
In February, the central bank introduced the RTGS dollar and said it and bond notes would no longer be pegged to the US currency. This precipitated a rapid depreciation in the newly introduced interbank rate and the black market value. Inflation, at 97.9%, is now at its highest since at least 2008.
This “will worsen the situation”, said Christopher Mugaga, the CEO of the Zimbabwe National Chamber of Commerce.
Companies “with real dollars will simply go underground”, he said.
Finance Minister Mthuli Ncube said that this week’s announcement gave the central bank “flexibility” to conduct monetary policy.
The authorities in Zimbabwe have previously said the central bank plans to establish a monetary policy committee.
“We can also expect the creation of a monetary policy committee as part of the micro institutions that are going towards stabilising the value of the currency,” he said